In Search of Angels and Unicorns in the Balkans: How Diana Koziarska is de-risking CEE investments while adding value

Diana of SMOK Ventures is traveling throughout the CEE in order to learn exactly what founders need.

Before the pandemic, venture capital powerhouses demanded that founders relocate in order for VCs to be “hands on” and supportive. Whether or not that actually matters is another conversation. What does matter is whether an investor understands the environment that shapes founders and their ideas.

Have you ever met a VC who takes real risks for their fund and their portfolio companies? Who spends a day in their founders’ shoes? Who goes the extra mile to understand their founders’ mindsets?

What about 640 miles?

Diana Koziarska of Warsaw-based SMOK Ventures is doing exactly that as she travels throughout the Balkans. She wants to learn more about each country’s unique needs and strengths, while also getting first-hand experience of founders’ obstacles and the local factors impacting their startups.

“I’m getting to know how people live in different countries and how they work,” she explains. “I can see what their economic situation is, how it influences the kind of innovation they are building, and how big they are thinking. I get to know what is happening in the local ecosystem so that I can understand where SMOK can have the biggest impact and where we can be useful as the investor.”

A VC getting hands-on experience alongside the founders they invest in? Unheard of.

How to Properly De-Risk Early Stage Investing

Diana considers herself and the SMOK team to be risk takers. Since 2019, they’ve been investing in early stage startups, primarily in Poland. But as the Polish ecosystem has become saturated with capital and startups, SMOK has decided to focus its efforts and funds on Central and Eastern Europe.

It’s one of the fastest growing European regions for tech, yet it has the lowest presence of VC. From 2017 to 2022, it received just €5.3 billion in funding, compared to €14.7 billion that went into the DACH region alone. However, in that same timespan, VC activity in the CEE grew by more than 7 times, compared to barely 3 times in DACH countries.

With the rise of unicorns like Romania’s UiPath and Croatia’s Infobip, foreign investors are taking note of the region—which can work for and against the CEE startup ecosystem. “More and more capital is actually available to the founders, but also it influences where they start,” Diana says. “In Croatia, they have three VCs investing in the whole country. So do founders build something locally or do they go straight to the U.S. for the funding?”

For those that aim to achieve exponential growth, relocating to the U.S. seems like the best option. Smaller CEE countries simply can’t compete when it comes to bigger market size, bigger checks, and a bigger talent pool. So Diana and SMOK are bringing their hands-on mindset to the Balkans, with the hopes of developing a thriving ecosystem.

“Most of the time when we invest, there is not a product ready, there is not a user base. We have to trust the founders,” she explains. “If I'm to work closely with someone for the next eight years and support them, I need to like the person and be able to work with them. That's why I'm traveling to get to know the people in the ecosystems: so I can invest in the people I've met personally. If SMOK wants to invest in all of the local ecosystems, I don't think meeting people at the conference twice a year is enough to create this strong relationship with all of the local ecosystems.”

What CEE Founders Really Need

There are some accelerators throughout the Balkans that can help founders through the early stages, but once founders complete those programs, they’re not immediately ready to raise their next round of funding. Oftentimes they still need to build, iterate, and reach more customers before most VCs will seriously consider investing.

And that’s why operator angels will be essential for the development of CEE startups in order to compete with the rest of Europe (let alone the U.S.). European VCs are much less likely to invest in early stage startups, mostly due to their backgrounds in traditional finance and their lack of risk appetite. While it may be common in the U.S. to see founders becoming investors in the past 10 years, Europe’s VC ecosystem is still slow to gain that experience.

Most investors only have private equity and investment banking backgrounds, and have never built a company themselves. “The first investors wanted too much equity in the company, and they were too controlling of the companies,” Diana explains. “If you have tech entrepreneurs who are investing, they have a healthier style of angel investing.”

The same goes for many U.S.-based funds, but it’s becoming more and more common to see founders and people with non-traditional financial backgrounds to spin up funds. And the same goes for current angel investors in Europe: they have the heart and desire to support founders in their early stages, but they rarely have the operational experience of building a company from the ground up.

“It’s important to build local, smart capital for every stage,” explains Diana. “So with the wave of the angels who are tech entrepreneurs, the tech ecosystem will develop.” Diana anticipates that, as each local ecosystem produces their own unicorns, they will also produce their own “Paypal mafias” that re-invest in those ecosystems.

Leave Your Slippers Behind

I appreciate that Diana and SMOK have gone a step beyond just expanding into an ecosystem and actually become part of it. The effort demonstrates a commitment to their thesis and a true desire to be a value-add.

Because not every tech darling needs to be where the money is. Sometimes the money—and the knowledge—need to go where the vision begins.